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Bajaj Auto Ltd. – Q2FY14 Result Update CMP: Rs 2,168 Target Price: Rs 2,230 Recommendation: ACCUMULATE “Higher Realization Changed the Fortune” Key Highlights: Bajaj Auto reported Topline growth of 4% Y-o-Y to Rs.5175crs on account of higher realization per unit (~14.7%) on Y-o-Y basis. EBITDA increased by 23.7% Y-o-Y to Rs.1132crs. EBITDA margins for the quarter expanded by 336bps Y-o-Y to 22.4% due to better realization on Y-o-Y basis and lower raw material costs. Net profit grew by 13% Y-o-Y to Rs.837crs mainly on account of overall improvement on operating side. Better realization support Topline: Bajaj Auto recorded Net sales of Rs.5175crs up by 5.4% on q-o-q and by 4.1% on y-o-y basis on account of higher realizations which was up by 7.2% on q-o-q and by 14.7% on y-o-y basis. Realization for the quarter was Rs.52651 mainly on the back of better product mix and export revenue growth due to rupee depreciation. However sales growth was offset by decrease in sales volume down by 1.8% q-o-q and by 8.4% on y-o-y. Surprise on EBITDA margins front: Bajaj Auto’s EBITDA was up by 24.8% q-o-q and by 23.7% on y-o-y basis to Rs.1132crs on the back of decrease in raw material cost. Margins expanded largely by 336bps y-o-y & by 351bps q-o-q to 22.4%. It was mainly on the account of higher sales of premium bikes and 3-wheelers which are high margin products. PAT margins expanded: Bajaj Auto reported Net Profit of Rs.837crs up by 13% y-o-y and by 13.5% on q-o-q basis on account of higher exports and overall improvement on operating side. Margins expanded by 128bps y-o-y and sequentially it increased by 116bps. Valuations & Views Bajaj Auto reported good set of numbers this quarter showing a positive sign of the end of tough period. With the onset of festive season coupled with company’s plan to launch around 5-6 new models in the next 6 months will help the company to increase its volume sales. However we expect margins to taper due to increase in commodity prices. Better product mix and higher contribution from export market will help company to grow even in this slow and competitive market going ahead. We expect Bajaj Auto’s Revenue & EPS to grow at healthy CAGR of 13% and 24% respectively over FY12-15E. At CMP of Rs.2168, the stock is trading at 18.4x FY14E EPS of Rs.118 & 16.5x FY15E EPS of Rs.131 which we feel is fairly valued. However, we recommend an Accumulate rating on the stock with a target of Rs.2230.

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